ICICI Securities: HDFC Bank’s Q1 Reports Resilient, Confident Show Despite Challenges
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ICICI Securities Report
HDFC Bank’s Q1 FY21 performance was commendable and the management’s narrative was resilient, despite challenges reflected in: 1) Moratorium 2.0 portfolio at 9% (lowest heard till now), 2) confidence in credit reserves of approximately 55 basis points coupled with 76% Non Performing Loan coverage being sufficient ceteris paribus, 3) digital initiatives, franchise strength and sharp focus helping capture opportunities without compromising quality.
Market share gain (21% advance growth), steady Net Interest Margin Security at 4.3% (despite 70bps Marginal Cost of Funds Based Lending Rate (MCLR) cut and operating cost agility (down 24% YoY ex-employee cost) aided 7% core operating profit growth in the most disrupted quarter. Accelerated recognition of 30bps of advances and expedited provisioning (coverage up 4%) initiated on non-morat pool, though contingency buffer was limited at mere 10bps. Earnings growth of 20% was buoyed by treasury gains of Rs 10.9 billion. Performance reaffirms our stance that HDFC Bank will lead responsibly and is best positioned to rebound quicker offsetting near term weakness.
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